Alaska’s Business Climate Ranks Consistently Low, Nationally
Economists at the UAA Institute for Social and Economic Research (ISER) have shown that Alaska’s economy rests on a “three legged stool”. The three legs are: 1) Federal government spending, 2) Crude oil production, and 3) All other basic industries combined, such as mining, fishing and tourism.
While Alaska has always been very open to federal spending, we rank strikingly low as a place for the private sector to do business. This is documented extensively by several organizations that publish nationwide rankings on the business friendliness of states. They tend to rank Alaska at or toward the bottom of the 50 U.S. states, consistently, over the years.
CNBC, Forbes Magazine and ChiefExecutive.net are three of the leading organizations that publish such rankings. As the nearby table shows, while these organizations vary widely in scoring methods, the overall outcomes are remarkably similar: Alaska has among the worst business climates in the country, year after year, in spite of our light tax burden on most businesses, except oil and gas.
The 2011 rankings in Forbes’ Best States for Business survey puts Alaska at 42 of 50. While other states have gone up and down over the past three years, Forbes has pegged Alaska at number 42 each year. Among our worst categories was “Regulatory Environment”. Our best category was “Economic Climate”, reflecting the fact that Alaska’s economy has performed better during the Great Recession than most other states. This is due to the economic stimulus of high oil prices and the resulting state budget growth.
ChiefExecutive.net, in it’s the State of the States survey, scores Alaska the highest of the three organizations, putting us at number 31 -- still well below average and a sharp drop from the 2010 ranking. This survey is based on the votes of CEOs of major U. S. corporations.
CNBC is the most bearish on Alaska in of the three, putting us at rock bottom (50) two of the past three years, and at 49 last year in its America’s Top States for Business survey. That small gain was due to Alaska’s fiscally fueled economic growth in 2010/2011.
Alaskans who are concerned about their future prosperity should take careful heed of these rankings. With oil production declining under the weight of a heavy tax burden, federal spending likely to decline due to deficit pressures, and state spending on an unsustainable trajectory, Alaska will need substantial amounts of private sector investment in new economic development projects in coming years if we wish to avoid an economic downturn.
Realistically, though, investors spend large sums on economic development projects only where the risk/reward ratio is seen as attractive. Being at or near the bottom of business climate rankings suggests that, quite often, we are not seen as attractive. On the other hand, states that compete with Alaska for resource investment dollars, such as Texas and N. Dakota, rank consistently in the top 10.
During the 2011/2012 legislative session, numerous bills were introduced on numerous subjects with the intent of making Alaska more attractive for business investment. Many of these bills passed the Alaska House of Representatives, only to die in the Alaska Senate. As a result, little to nothing has been accomplished in recent years to change Alaska’s receptiveness to business and economic development.
Alaska can and should do better. While certain elements of competitiveness, such as distance from markets and the size of the local labor pool, are difficult or impossible for Alaska to control, other elements, such as regulatory efficiency and taxation on key basic industries, can and should be improved.
Concerned Alaskans: please contact your legislators and ask them what they are doing to improve Alaska’s business climate.
By Scott Hawkins, with research contributions from Francy Bennett
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